Of course, many big public corporations also did very poorly. Several nearly destroyed their business and dragged down shareholder value with it. 24/7 Wall St. combed through the S&P 500 to find the best and worst managed companies in America for 2011.
To make a list of semifinalists, 24/7 Wall St. considered stock price, changes in earnings per share, major shifts in market share and changes in management, among other data. Once the initial screen was complete, we reviewed product launch success, financial results, success of new management and the performance of each company within its industry. The editors then sifted through the finalist to identify those that rewarded both customers and shareholders and those that caused these two groups the most harm.
Neither the best-run companies list nor the worst-run companies list includes a large number of corporations from any single industry. This indicates our methodology identifies well- and worst-managed companies regardless of the industry. Based on our criteria, the management of Starbucks did as good a job as the management of Oracle — two of the best-run companies. Similarly, Eastman Kodak management did as poorly as the management of American Airline parent AMR — two of the worst-run companies.
This is 24/7 Wall St.’s Best and Worst Run Companies of 2011.
> CEO name (tenure): Tim Cook (less than 1 year)
> YTD stock: up 20%
> Latest quarter EPS: up 52% to $7.05
> Insider ownership: 5.5%
> Key event: launch of iPhone 4S, death of Steve Jobs
The death of Steve Jobs is the single most memorable event that happened at Apple (NASDAQ: AAPL) this year. But it overshadows another period of remarkable results. Apple continued to grow at an extraordinary rate despite its size. In Apple’s fiscal year, which ended in September, revenue rose to $108 billion from $65 billion the year before. Net income rose from $14 billion to $26 billion. Days after it announced its fiscal numbers, Apple said it had sold 4 million of its flagship iPhone 4S in the first weekend it was available. Apple also became the most valuable public company in the U.S. at $361 billion during 2011, briefly surpassing Exxon Mobil (NYSE: XOM).
> CEO name (tenure): Jeff Bezos (17 years)
> YTD stock: up 8%
> Last quarter EPS: down 73% to $0.14
> Insider ownership: 19.7%
> Key event: launch of Kindle Fire
Jeff Bezos and company followed up the launch of the Kindle e-reader less than two years ago with the new Kindle Fire tablet PC. Most analysts believe it is the only tablet with a chance to challenge sales of the Apple iPad. The tens of millions of people who come to Amazon.com (NASDAQ: AMZN) give the world’s largest e-commerce company an unprecedented audience for sales of the machine. Amazon said that Black Friday sales of the Kindle family of products rose four-fold compared to last year. Amazon’s Prime Instant Video business continued to grow as it cut a deal with FOX, which increased the total available titles for the service to 11,000. Amazon’s third-quarter sales rose 44% to $10.9 billion.
> CEO name (tenure): Leslie Moonves (8 years)
> YTD stock: up 37%
> Last quarter EPS: up 164% to $0.58
> Insider ownership: chairman Sumner Redstone owns 79.2% of controlling shares
> Key event: video streaming deal with Amazon
Both the shares and financial results of CBS (NYSE: CBS) continue to outpace those of other major media companies. The company’s flagship network still leads others in many critical prime time program spots with hits like “CSI,” as well as its NFL sports coverage. CBS recently won the critical November “sweeps” ratings for the 11th straight year, an important consideration for national advertisers. CBS has been aggressive at the local stations level, insisting on license fees for its programs that run on local cable networks. Perhaps as important as any other initiative, CBS has started to put its programming onto cable through deals with Amazon.com and Hulu.
4. Yum! Brands
> CEO name (tenure): David Novak (11 years)
> YTD stock: up 18%
> Last quarter EPS: up 8% to $0.80
> Insider ownership: 2.9%
> Key event: buys Little Sheep Food chain in China
Many restaurant industry analysts say the future of fast food is in China. The U.S. has begun to overflow with locations, and sales in Europe and Japan have slowed with the regional economies. Yum! Brands (NYSE: YUM) worked its way further into China — its largest growth market — with the purchase of local fast food chain “Little Sheep Food.” Yum’s Kentucky Fried Chicken franchise is the world’s largest. When it released Q3 numbers, the company said it would open 600 new stores in China by year-end. Yum has balanced its portfolio of brands that includes Pizza Hut, Kentucky Fried Chicken, and Taco Bell. It does not rely on any single one of these brands exclusively as McDonald’s (NYSE: MCD) must. Together, Yum’s brands have 36,000 locations worldwide, which rival McDonald’s total distribution network.
> CEO name (tenure): Steve Ballmer (11 years)
> YTD stock: down 8%
> Latest quarter EPS: up 10% to $.68
> Insider ownership: 10.42%
> Key event: buys VoIP giant Skype
Microsoft (NASDAQ: MSFT) has been called the worst-run American company for several years because it has had little success in its attempts to diversity beyond the aging Windows families of products. In 2011, it began to break away from its reliance on those products with several launches and acquisitions. The most important of these was the buyout of worldwide VoIP leader Skype, which has 663 million registered users. The deal gives Microsoft a huge base to market Windows cloud-based products, Xbox and other entertainment products, as well as the company’s Bing search engine. Microsoft also gripped the only chance available to gain a large stake in the mobile operating system business. It set a deal with the world’s largest handset company, Nokia (NYSE: NOK), to ship Windows mobile software on most Nokia phones. Many analysts believe the partnership phones will come to the market too late. The same observation held true when Google (NASDAQ: GOOG) launched Android to compete with Apple. Microsoft is taking smart risks again and has the balance sheet to back them. On December 7, to delight of shareholders, the company announced it would be releasing Windows 8 in the second half of 2012.
> CEO name (tenure): Larry Ellison (34 years)
> YTD stock: up 0.5%
> Latest quarter EPS: up 33% to $0.36
> Insider ownership: 23.2%
> Key event: buy cloud company “RightNow”
The company Larry Ellison founded continues to dominate the global enterprise software industry despite challenges from IBM (NYSE: IBM), HP, and Microsoft. Oracle (NASDAQ: ORCL) recently bought RightNow, a cloud computing company, after two other recent buyouts of ATG and Fatwire. Oracle is one of the few large American corporations that has been able to successfully buy that which it cannot build quickly. Oracle has nearly 50% of the global database market, which is considered critical to the sale of its servers and consulting products to large IT businesses and corporate IT departments.
> CEO name (tenure): Howard Schulz (3 years, second tenure as CEO)
> YTD Stock: up 36%
> Latest Quarter EPS: Up 33% to $0.36
> Insider ownership: 4.8%
> Key Event: ppens 500th store in China
When Howard Schultz, Starbucks’s (NASDAQ: SBUX) founder, returned to the helm of the company three years ago, it was in a shambles. It had expanded too quickly, particularly in the U.S., just as the economy hit a recession. Schultz retrenched, and then began to recreate the corporate image. Among his most important decisions was to introduce the Via line of instant coffee, which allowed people to drink Starbucks coffee easily without going to stores. Additionally, Starbucks increased product distribution through other fast food outlets with its Seattle’s Best Coffee. Schultz also made simple changes to stores, which put baristas closer to customers. This became part of the original intimacy that allowed Starbucks to grow as a brand. Starbucks continues to diversity its risk beyond the store level. It recently bought Evolution Fresh as an attempt to move into the fresh juice market.
8. Whole Foods
> CEO name (tenure): John Mackey (21 years)
> YTD stock: up 35%
> Latest quarter EPS: up 32% to $0.50
> Insider ownership: 12.0%
> Key event: announced 1,000 store goal
Whole Foods (NASDAQ: WFM) was a niche food retailer for nearly two decades. Management recently decided to change that, and the company has embarked on plans that could easily double its size. Whole Foods has 316 stores in the U.S. and says it will take that number to 1,000 in the next few years. It also plans further expansion into Canada and the UK. Wall St. has approved of the Whole Foods’ expansion plan for two reasons. The first is that the food chain is unusual in the industry because it has no debt. The second is that sales of organic foods have become attractive enough so that even big-box companies like Walmart (NYSE: WMT) and Target (NYSE: TGT) carry them.
9. Walt Disney
> CEO name (tenure): Robert Iger (6 years)
> YTD stock: down 2%
> Latest quarter EPS: up 15% to $0.77
> Insider ownership: 7.6%
> Key event: ESPN reaches 100 million households
Disney (NYSE: DIS) has done well because it follows a key premise of successful management. It sticks to its knitting and improves the operating efficiencies of businesses it already knows. Disney has added a number of channels that carry the ESPN name, taking advantage of what is arguably the most well-known name in sports media. And while it is difficult for any brand to accomplish, let alone a multi-decade-old one, the company has actually managed to keep the Disney brand pristine. Brand research firm Interbrand ranks Disney as the number nine most valuable brand in the world, with brand equity of $29 billion — only slightly behind Apple’s. This permits the company to more easily market its growing list of theme parks, films and Disney store locations
10. Home Depot
> CEO name (tenure): Frank Blake (4 years)
> YTD stock: up 16%
> Latest quarter EPS: up 18% to $0.60
> Insider ownership: 1.04%
> Key event: Q3 comparable store sales up 3.8%
It is extraordinary that Home Depot (NYSE: HD) has been able to manage an increase in same-store sales during a housing downturn. Careful cost management has also give shareholders a nearly 20% EPS growth rate. To say that the largest home improvement chain in the U.S. faces headwinds when real estate prices in some regions are down 40% or more is an understatement. Home Depot’s success is related to its new programs to connect to customers. It offers “how-to” product guides that make it easier for novices to make home repairs. Home Depot also hosts online forums, which help people share building problems and solutions. It now rents tools as well as sells them. Home Depot is not just a store chain any more; it acts as a reference guide to home ownership
1. Avon Products
> CEO name (tenure): Andrea Jung (12 years)
> YTD stock: down 40%
> Latest quarter EPS: flat at $0.38
> Insider ownership: 1.75%
> Key event: SEC starts investigation
Avon’s (NYSE: AVP) management has taken one of the greatest franchise operations in the world and nearly ruined it. The company has bungled its move into markets like China, where the company faces a bribery probe. Revenue growth in emerging markets, such as Brazil and Russia, has faltered. When it announced third-quarter earnings, Avon said it could no longer support its guidance for the balance of the year. The news caused several analysts to downgrade the company’s financial prospects and its stock. CEO Andrea Jung said Avon would continue to seek solutions through another of her interminable restructurings of personnel and operations. Just after Avon announced financial results, it disclosed an SEC investigation into improper contacts between the company’s management and Wall St. analysts.
2. Research In Motion
> CEO name (tenure): Jim Balsillie (19 years)
> YTD stock: down 71%
> Latest quarter EPS: down 57% to $0.63
> Insider ownership: N/A
> Key event: takes $485 million Playbook write-down
Research In Motion (NASDAQ: RIMM) was “the” smartphone company until Apple released the first iPhone in mid-2007. RIM had every chance to move from its core enterprise market into the consumer one, but was slow to do so and released poorly designed products. It then allowed itself to be flanked by another generation of smartphones built with the Google Android mobile operating system. RIM management continued the destruction of the company’s value through the release of several other badly built and badly marketed products, the most recent of which was the tablet PC Playbook meant to compete with the Apple iPad. Sales have been so poor that RIM recently took a $485 million write-down on its Playbook inventory. Also, RIM has recently warned twice that it would miss earnings forecasts. Three months ago, RIM said it would fire 2,000 of its 19,000 workers. RIM’s BlackBerry was the first smartphone, but its sales are close to putting it in last place among its competition. On December 7, after a trademark dispute, RIM backed down on its plan to change the name of its OS.
> CEO name (tenure): Thomas Horton (less than 1 year)
> YTD stock: down 99%
> Latest quarter EPS: loss of $0.48, down from $0.39
> Insider ownership: 1.0%
> Key event: declares Chapter 11
AMR (NYSE: AMR), parent company of American Airlines, declared Chapter 11 recently. CEO Gerard Arpey turned down the board’s offer to stay as chief executive. Perhaps he was too humiliated by what he had done to ruin what was once considered the flagship airline of the United States. The most recent error on management’s part was its inability to settle labor disputes with the pilots, losing Wall St.’s confidence in the airline’s viability in the process. Investors traded shares down relentlessly during the month before the bankruptcy filing. Arpey’s greatest mistake, however, was his decision not to merge American with another large U.S. carrier. Meanwhile, a merger between United and Continental was put together to cut routes, personnel and equipment costs, among other things. Delta and Northwest set a marriage for the same reasons. American was left on the outside of the industry’s cost cutting trend.
4. Eastman Kodak
> CEO name (tenure): Antonio Perez (6 years)
> YTD stock: down 79%
> Latest quarter EPS: down 419% to $0.83 loss
> Insider ownership: 1.8%
> Key event: lurches toward Chapter 11
Kodak (NYSE: EK) went from being primarily an operating company with photo and digital assets to one which investors view as a patent holder with intellectual property to sell. Unfortunately, Kodak did not make a successful transition from the first to the second. It has never gotten a viable offer for any portion of its patent portfolio. Now, Kodak is within days of Chapter 11. Investors, in many cases, believe Kodak misled them. In the summer, it signaled it had adequate cash to operate through the end of the year. Within several weeks, the company said it would have to draw down a $160 million credit line. The stock promptly fell below $1. It’s hard to believe the stock was a component of the Dow Jones Industrial Average index as recently as 2004. To advise it on bankruptcy options, Kodak hired and then fired law firm Jones Day and quickly replaced it with Sullivan Cromwell. Kodak’s management cannot even decide which advisers are best suited to aid it. Kodak may have no choice other than to file for Chapter 11 because of lease and pension obligations. That has not kept CEO Antonio Perez from saying Kodak should make money next year. At this point, no one believes him.
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5. Bank of America
> CEO name (tenure): Brian Moynihan (3 years)
> YTD stock: down 57%
> Latest quarter EPS: $0.56 from a loss of $0.77
> Insider ownership:0.2%
> Key event: announced 30,000 layoffs
Bank of America (NYSE: BAC) management teeters between telling Wall St. that its business is viable and raising money, which would imply it is not viable. Wall St. lost confidence in Bank of America as management tried to explain away the future of its nearly $2 trillion in real estate loans, many of which have soured. It faces billions of dollars in lawsuits that claim it fraudulently marketed packages of mortgage backed paper. CEO Brian Moynihan tried to quiet Wall St. with assurances the bank had adequate reserves to survive even in a difficult economy. He then quickly took $5 billion from Warren Buffett under unfavorable terms. He also sold a valuable interest in China Construction Bank. As it raised the capital, Bank of America announced it would fire 30,000 employees, a sign it is not nearly prepared for Federal Reserve stress tests next year.
> CEO name (tenure): Glenn Murphy (4 years)
> YTD stock: down 13%
> Latest quarter EPS: down 3% to $0.35
> Insider ownership: 44%
> Key event: announced shuttering of 21% of stores
The Gap (NYSE: GPS) has had trouble managing its portfolio of Gap, Banana Republic, Old Navy and Athleta brands. November continued a string of mostly awful same-store sales comparisons. Same-store sales for Gap North America brand were off 2% from November of last year. Old Navy’s were down 7%. International sales declined 9%. In October, Gap did something no large retailer wants to do. It announced a huge series of store closures in North America. The move will end up closing 21% of its flagship stores, or 200 locations, through 2013. Gap’s management has not found a formula to keep customers who now go to J. Crew, Abercrombie & Fitch (NYSE: ANF), and American Eagle Outfitters (NYSE: AEO).
> CEO name (tenure): Meg Whitman (less than 1 year)
> YTD stock: up 22%
> Latest quarter EPS: up 7% to $0.12
> Insider ownership: 3.1%
> Key event: fires CEO
Hewlett-Packard (NYSE: HPQ) is widely regarded as the largest American company with both a dysfunctional and inept board of directors. It has fired successful CEO Mark Hurd and unsteady replacement Leo Apotheker within a year of one another. The board then hired Meg Whitman, former CEO of eBay (NASDAQ: EBAY), without an executive search. Whitman has never run a large technology company. In the last days of Apotheker’s stewardship, HP said it might spin off its PC operations. Whitman contradicted that soon after she joined the company. All through these series of dramas, HP’s financial results deteriorated. The board was unable to cobble together neither a strategic plan nor a management team after Hurd’s departure. When the company announced its most recent quarterly numbers it said revenue would be below expectations in the next fiscal year. That will not do when rivals IBM and Oracle improve results each quarter.
> CEO name (tenure): Andrew Mason (3 years)
> YTD stock: (IPO 11/3) down 3%
> Latest quarter EPS: N/A
> Insider ownership: N/A
> Key event: shares drop 40% following IPO
Groupon (NASDAQ: GRPN) had credibility problems before it went public. The company has never made any money. Last year, it managed to lose $390 million on $313 million in revenue. In the first three quarters of 2011, Groupon lost $308 million on $1 billion in revenue. Groupon’s first set of IPO financial data deeply disturbed accountants, and this damaged the e-commerce coupon company’s reputation. Groupon used “nontraditional” accounting methods to realize revenue and operating income. This, in turn, improved its financial picture when compared to typical GAAP measures. Groupon’s management has also done an extremely poor job explaining how the company will hold off competition from similar online sites like Living Social and related products created by Google and big-box operations like Walmart. Groupon has compounded an accounting problem with an inability to address skepticism about its basic business model.
> CEO name (tenure): Reed Hastings (14 years)
> YTD stock: down 60%
> Latest quarter EPS: up 66% to $1.16
> Insider ownership: 8.9%
> Key event: price increase alienate customers
Netflix (NASDAQ: NFLX) raised its subscriber rates by 60% in July. When customers revolted, it tried to remedy the situation by separating its online and DVD rental operations. A few days later, it put them back together again. In the process it lost about 800,000 customers, according to its latest quarter. On the heels of these problems, Netflix sharply cut its guidance for the upcoming quarter and said it would lose money in 2012. Four Wall St. analysts downgraded the stock the following day. The trouble did not end with that. In late November, Netflix said it needed capital because of its expected losses next year and would therefore raise $400 million. This caused investors to worry the license costs of its premium programming would be greater than revenue from it subscription growth. Netflix’s management did not foresee the costs of its content rising as much as they did, or it would not have claimed earlier this year that it would be profitable next year. It also neglected to see that a 60% subscription fee increase would drive away customers in droves.
Douglas A. McIntyre
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